Jefferies Reports First Quarter 2012 Financial Results

NEW YORK & LONDON--(BUSINESS WIRE)--Jefferies Group, Inc. (NYSE: JEF) announced today financial results for
its fiscal first quarter ended February 29, 2012.

Highlights for the three months ended February 29, 2012, versus the
three months ended February 28, 2011:

Record net record revenues of $780 million, versus $758 million

Net income to common shareholders of $77 million, versus $87 million
(after $41 million versus $31 million of aggregate earnings to
noncontrolling interests and interest on mandatorily redeemable
preferred interests substantially at Jefferies High Yield Trading)

A conference call with management discussion of these financial results
will be held today, March 20, 2012, at 9:00 AM Eastern. Investors and
securities industry professionals may access the management discussion
by calling 877-710-9938 or 702-928-7183. A one-week replay of the call
will also be available at 855-859-2056 or 404-537-3406 (conference ID #
58239317). A live audio webcast and delayed replay can also be accessed
at Jefferies.com.

Jefferies Group, Inc. (NYSE: JEF) is the global investment banking firm
focused on serving clients for nearly 50 years. The firm is a leader in
providing insight, expertise and execution to investors, companies and
governments, and provides a full range of investment banking, sales,
trading, research and strategy across the spectrum of equities, fixed
income and commodities, as well as offers select asset and wealth
management strategies, in the U.S., Europe and Asia.

As certain restricted stock is contingent upon a future service
condition, unearned shares are removed from shares outstanding in
the calculation of basic EPS as Jefferies' obligation to issue these
shares remains contingent.

(3)

As earned restricted stock units are no longer contingent upon a
future service condition and are issuable upon a certain date in the
future, earned restricted stock units are added to shares
outstanding in the calculation of basic EPS.

Calculated under the treasury stock method. The treasury stock
method assumes the issuance of only a net incremental number of
shares as proceeds from issuance are assumed to be used to
repurchase shares at the average stock price for the period.

(6)

Calculated under the if-converted method. The if-converted method
assumes the conversion of convertible securities at the beginning of
the period.

(7)

Represents the potential common shares issuable under the conversion
spread (the excess conversion value over the accreted debt value)
based on the average stock price for the period.

The following details the calculation of basic and diluted earnings
per share as included in our quarterly and annual reports.

Quarters Ended

February 29,2012

November 30,2011

August 31,2011

May 31,2011

February 28,2011

November 30,2010

Earnings for basic earnings per common share:

Net earnings

$

96,717

$

45,614

$

54,010

$

84,700

$

102,045

$

77,452

Net earnings (loss) to noncontrolling interests

19,581

(2,772

)

(14,265

)

4,084

14,704

14,735

Net earnings to common shareholders

77,136

48,386

68,275

80,616

87,341

62,717

Less: Allocation of earnings to participating securities (A)

4,643

2,560

3,410

3,756

3,925

2,650

Net earnings available to common shareholders

$

72,493

$

45,826

$

64,865

$

76,860

$

83,416

$

60,067

Earnings for diluted earnings per common share:

Net earnings

$

96,717

$

45,614

$

54,010

$

84,700

$

102,045

$

77,452

Net earnings (loss) to noncontrolling interests

19,581

(2,772

)

(14,265

)

4,084

14,704

14,735

Net earnings to common shareholders

77,136

48,386

68,275

80,616

87,341

62,717

Add: Convertible preferred stock dividends (B)

1,016

-

1,016

1,016

1,016

1,016

Less: Allocation of earnings to participating securities (A)

4,639

2,560

3,415

3,748

3,907

2,653

Net earnings available to common shareholders

$

73,513

$

45,826

$

65,876

$

77,884

$

84,450

$

61,080

Weighted Average Common Shares:

Basic

218,049

215,628

218,426

210,751

199,141

194,901

Diluted

222,162

215,629

222,541

214,870

203,257

199,017

Earnings per common share:

Basic

$

0.33

$

0.21

$

0.30

$

0.36

$

0.42

$

0.31

Diluted

$

0.33

$

0.21

$

0.30

$

0.36

$

0.42

$

0.31

(A) Represents dividends declared during the period on participating
securities plus an allocation of undistributed earnings to
participating securities. Losses are not allocated to participating
securities. Participating securities represent restricted stock and
restricted stock units for which requisite service has not yet been
rendered and amounted to weighted average shares of 14,198,000,
11,755,000, 11,239,000, 10,260,000, 9,403,000 and 8,599,000 for the
three months ended February 29, 2012, November 30, 2011, August 31,
2011, May 31, 2011, February 28, 2011 and November 30, 2010,
respectively. Dividends declared on participating securities during
the three months ended February 29, 2012, November 30, 2011, August
31, 2011, May 31, 2011, February 28, 2011 and November 30, 2010
amounted to approximately $959,000, $959,000, $934,000, $794,000,
$686,000 and $632,000, respectively. Undistributed earnings are
allocated to participating securities based upon their right to
share in earnings if all earnings for the period had been
distributed.

(B) The conversion of our mandatorily redeemable convertible
preferred stock was considered anti-dilutive for our three-months
ended November 30, 2011.

(2)

This amount represents a preliminary estimate as of the date of this
earnings release and may be revised in our Quarterly Report on Form
10-Q for the three months ended February 29, 2012.

(3)

Level 3 assets represent those financial instruments classified as
such under ASC 820, accounted for at fair value and included within
Financial instruments owned. Level 3 assets for which we bear no
economic exposure were$55.5 million at February 29, 2012,
which is reflective of the portion of our Level 3 assets that are
financed by nonrecourse secured financing or attributable to third
party or employee noncontrolling interests in certain consolidated
entities.

Adjusted common stockholders’ equity (non-GAAP financial measure)
represents total common stockholders’ equity plus the unrecognized
compensation cost related to nonvested share based awards, i.e.
granted restricted stock and restricted stock units which contain
future service requirements. As of February 29, 2012, unrecognized
compensation cost related to nonvested share based awards was $184.9
million. We believe that adjusted common stockholders’ equity is a
meaningful measure as it reflects the current capital outstanding to
stockholders, including employee common shareholders, that would be
required to be paid out in liquidation.

(6)

Common book value per share equals total common stockholders' equity
divided by common shares outstanding.

(7)

Adjusted book value per share (non-GAAP financial measure) equals
adjusted common stockholders’ equity divided by adjusted shares
outstanding. Adjusted tangible book value per share (non-GAAP
financial measure) equals adjusted common stockholders’ equity less
goodwill and identifiable intangible assets divided by adjusted
common shares outstanding. As of February 29, 2012, goodwill and
identifiable intangible assets equals $385.3 million. Previous
quarters have been conformed to reflect this calculation. We believe
these are meaningful measures as investors often incorporate the
dilutive effects of outstanding capital in their valuations.

(8)

Tangible common book value per share (non-GAAP financial measure)
equals tangible common stockholders' equity divided by common shares
outstanding. As of February 29, 2012, tangible common stockholders'
equity equals total common stockholders' equity of $3,287.7 million
less goodwill and identifiable intangible assets of $385.3 million.
We believe that tangible common book value per share and
tangible common stockholders' equity is meaningful as a valuation of
financial companies are often measured as a multiple of tangible
common stockholders' equity making these ratios meaningful for
investors.

(9)

Total capital includes our long-term debt, mandatorily redeemable
convertible preferred stock, mandatorily redeemable preferred
interest of consolidated subsidiaries and total stockholders'
equity. Long-term debt included in total capitalization at February
29, 2012 is reduced by the amount of debt maturing in less than one
year and revolving credit facility.

(10)

Leverage ratio equals total assets divided by total stockholders'
equity.

(11)

Adjusted leverage ratio (non-GAAP financial measure) equals adjusted
assets divided by tangible stockholders' equity. Adjusted assets
(non-GAAP financial measure) equals total assets less securities
borrowed, securities purchased under agreements to resell, cash and
securities segregated, goodwill and identifiable intangibles plus
financial instruments sold, not yet purchased (net of derivative
liabilities). As of February 29, 2012, adjusted assets were
$28,871.3 million. We believe that adjusted assets is a
meaningful measure as it excludes certain assets that are considered
of lower risk as they are generally self-financed by customer
liabilities through our securities lending activities.

(12)

VaR is the potential loss in value of our trading positions due to
adverse market movements over a one-day time horizon with a 95%
confidence level. For a further discussion of the calculation of
VaR, see "Value at Risk" in Part II, Item 7 "Management's Discussion
and Analysis" in our Annual Report on Form 10-K for the twelve
months ended November 30, 2011.

(13)

Adjusted shares outstanding equals common shares outstanding plus
outstanding restricted stock units. On November 29, 2011, we granted
6,339,000 shares of restricted stock as part of year-end
compensation. These shares of restricted stock were issued in the
first quarter of 2012 and are included in the November 30, 2011
adjusted shares outstanding. On November 29, 2010, we granted
5,062,000 shares of restricted stock as part of year-end
compensation. These shares of restricted stock were issued in the
first quarter of 2011 and are included in the November 30, 2010
adjusted shares outstanding.

The adjustments to selected financial information presented above and
the presentation of the selected financial information for the three
months ended February 29, 2012 and the three and twelve months ended
November 30, 2011 excluding the effects of a debt accounting gain and
certain items identified and recognized in connection with the
acquisition of Hoare Govett from The Royal Bank of Scotland Group plc on
February 1, 2012 and the acquisition of the Global Commodities Group
(the "Bache entities") from Prudential Financial, Inc. ("Prudential") on
July 1, 2011 are "non-GAAP financial measures." We believe this
presentation provides meaningful information to shareholders as it
provides comparability in our results of operations for the three months
ended February 29, 2012 and the three and twelve months ended November
30, 2011 with the results of prior periods.

FOOTNOTES TO SELECTED FINANCIAL INFORMATION

(A)

Within Total revenues in the first quarter of 2012, we recognized
Other revenues of $13.2 million comprised primarily of a gain on
debt extinguishment of $9.9 million relating to trading activities
in our own debt and a bargain purchase gain of $3.4 million
resulting from the acquisition of Hoare Govett. This is offset
within Net Revenues by additional interest expense of $1.2 million
from subsequent amortization of debt discounts upon reissuance of
our long-term debt.

(B)

The three months ended February 29, 2012 is comprised of
compensation expense related to the amortization of retention and
stock replacement awards granted in connection with the acquisition
of the Bache entities, amortization of retention awards granted in
connection with the acquisition of Hoare Govett and bonus costs for
employees as a result of the completion of the Hoare Govett
acquisition. The three months ended November 30, 2011 is comprised
of amortization of retention and stock replacement awards granted in
connection with the acquisition of the Bache entities.

(C)

Reflects the amortization of intangible assets recognized in
connection with the acquisition of Hoare Govett and the Bache
entities for the three months ended February 29, 2012 and the
amortization of intangible assets recognized in connection with the
acquisition of the Bache entities for the three months ended
November 30, 2011.

(D)

Reflects the net tax expense on the debt accounting gain, Hoare
Govett bargain purchase gain and Hoare Govett and Bache related
expense items taxed at a domestic and foreign marginal tax rate of
41.4% and 25.3%, respectively. For the three and twelve months ended
November 30, 2011, the total domestic marginal tax rate of 41.7% was
applied. The bargain purchase gain of $52.5 million on the
acquisition of the Global Commodities Group recognized in the three
months ended August 31, 2011, is not a taxable item.

(E)

The conversion of our mandatorily redeemable convertible preferred
stock was considered anti-dilutive for purposes of these
calculations.

(F)

In accordance with Debt Extinguishment Accounting under ASC 405 and
470, we recorded a gain on debt extinguishment of $20.2 million in
Other revenues relating to trading activities in our own long term
debt, specifically our 5.125% Senior Notes due 2018 and our 3.875%
Convertible Senior Debentures due 2029.

(G)

Includes a gain on debt extinguishment of $20.2 million in the
fourth quarter of 2011 and a bargain purchase gain of $52.5 million
resulting from the acquisition of the Global Commodities Group from
Prudential recorded in Other revenues in the third quarter of 2011.

(H)

Includes compensation expense recognized in connection with the
acquisition of the Global Commodities Group related to 1) severance
costs for certain employees of the acquired Bache entities that were
terminated subsequent to the acquisition, 2) the amortization of
stock awards granted to former Bache employees as replacement awards
for previous Prudential stock awards that were forfeited in the
acquisition, 3) bonus costs for employees as a result of the
completion of the acquisition and 4) the amortization of retention
awards.

(I)

Includes the amortization of intangible assets of $0.7 million
recognized during the three months ended November 30, 2011 in
connection with the acquisition of the Bache entities as well as
expenses (primarily professional fees) totaling $7.1 million related
to the acquisition and the integration of the Bache entities within
Jefferies Group, Inc. recorded during the nine months ended August
31, 2011.